Association of Accounting Technicians (AAT) Introduction to Bookkeeping (Level 2) Syllabus

Introduction to Bookkeeping (Level 2) syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Introduction to Bookkeeping (Level 2) in Association of Accounting Technicians (AAT), not a summary of it.

1. 1

   The Foundations of Bookkeeping

   4 topics

   • Manual and digital bookkeeping systems
     • Purpose of accurate financial records
     • Advantages of computerised vs manual systems
     • The role of the bookkeeper
   • The accounting equation and the dual effect
     • Assets, liabilities and capital
     • Dual effect of every transaction
   • Business documents
     • Quotations, purchase orders and delivery notes
     • Invoices and credit notes
     • Remittance advice and statements of account
   • Coding and classification of transactions
2. 2

   Processing Sales and Purchases

   4 topics

   • The books of prime entry
     • Sales and sales returns day books
     • Purchases and purchases returns day books
   • Checking and authorising invoices
     • Trade and bulk discounts
     • Settlement (prompt payment) discounts
   • VAT on sales and purchases documents
     • Calculating VAT at standard and zero rates
     • VAT-inclusive and VAT-exclusive amounts
   • Transferring totals to the ledgers
3. 3

   Ledger Accounting and Double Entry

   4 topics

   • The general (nominal) ledger
     • Debit and credit rules
     • Posting from the day books
   • Sales and purchases ledgers
     • Subsidiary (memorandum) accounts
     • Control account relationship
   • Processing receipts and payments
     • Cash and credit transactions
     • Discounts allowed and received
   • Balancing ledger accounts
4. 4

   The Cash Book and Petty Cash

   4 topics

   • The two- and three-column cash book
     • Cash and bank columns
     • Discount columns
   • The petty cash book
     • The imprest system
     • Restoring the imprest amount
   • Recording petty cash vouchers and VAT
   • The cash book as a book of prime entry and ledger

Introduction to Bookkeeping (Level 2) flashcards for Association of Accounting Technicians (AAT)

22 of 50 cards from the Introduction to Bookkeeping (Level 2) deck — real questions with worked answers.

1. What is the difference between a manual and a digital (computerised) bookkeeping system?

   A manual system records transactions by hand in physical books/ledgers, while a digital system uses accounting software to record and process transactions electronically. Digital systems automate calculations, reduce arithmetic errors, produce instant reports, and process data faster; manual systems are cheaper to set up but slower and more error-prone.

2. State the accounting equation.

   $\text{Assets} = \text{Liabilities} + \text{Capital}$

3. Rearrange the accounting equation to make Capital the subject.

   $\text{Capital} = \text{Assets} - \text{Liabilities}$

4. What is meant by the 'dual effect' (duality) in bookkeeping?

   Every business transaction has two equal and opposite effects on the accounting records. For each transaction there is a debit entry and an equal credit entry, which keeps the accounting equation in balance.

5. In double-entry bookkeeping, which side increases an asset and which side increases a liability?

   An asset is increased by a debit entry. A liability (and capital) is increased by a credit entry.

6. Define an asset, a liability and capital.

   An asset is something the business owns or is owed (e.g. cash, equipment, receivables). A liability is something the business owes to others (e.g. loans, payables). Capital is the owner's investment in the business — the amount the business owes back to the owner.

7. Give the DEAD CLIC rule for debits and credits.

   DEAD: Debit increases Expenses, Assets, Drawings. CLIC: Credit increases Liabilities, Income, Capital. To decrease any of these, post the opposite entry.

8. List four common business documents used in the buying and selling process.

   Examples include: purchase order, delivery note, goods received note, invoice, credit note, statement of account, and remittance advice. (Quotations and price lists are also business documents.)

9. What is the purpose of a sales invoice?

   A sales invoice is a demand for payment sent by the seller to the customer. It lists the goods/services supplied, quantities, prices, any trade discount, the VAT charged and the total amount due to be paid.

10. What is a credit note and when is it issued?

    A credit note is a document issued by the seller to reduce the amount a customer owes. It is issued when goods are returned, an overcharge has been made, or an allowance is given. It effectively cancels all or part of an invoice.

11. What is the difference between a delivery note and a goods received note (GRN)?

    A delivery note is sent by the supplier with the goods, listing what has been delivered. A goods received note is created internally by the buyer to record what was actually received and check it against the delivery note and purchase order.

12. What is a statement of account and what is its purpose?

    A statement of account is sent by a supplier to a credit customer, usually monthly. It summarises all invoices, credit notes and payments during the period and shows the outstanding balance owed, acting as a reminder to pay.

13. What is a remittance advice?

    A remittance advice is a document sent by a customer to a supplier with (or notifying) a payment. It tells the supplier which invoices the payment relates to so the payment can be matched correctly.

14. What is the difference between a trade discount and a settlement (cash/prompt payment) discount?

    A trade discount is a reduction in the list price given at the point of sale (e.g. for bulk or to trade customers); it is deducted before VAT is calculated and is not recorded separately. A settlement discount is offered for paying within a set period; it affects the amount paid and the VAT treatment.

15. Why is coding used to classify transactions?

    Coding assigns a unique reference (code) to customers, suppliers, products or ledger accounts so that transactions can be quickly identified, sorted, analysed and posted to the correct account, reducing errors and aiding reporting.

16. Give examples of types of codes used in bookkeeping.

    Examples include customer (account) codes, supplier codes, product/stock codes, general ledger (nominal) codes, and analysis codes used to classify income and expenditure by category.

17. What are the books of prime entry?

    They are the books of original entry where transactions are first recorded before being posted to the ledgers: the sales day book, purchases day book, sales returns day book, purchases returns day book, the cash book, the petty cash book, and the journal.

18. Which book of prime entry records credit sales, and which records credit purchases?

    Credit sales are recorded in the sales day book (sales journal). Credit purchases are recorded in the purchases day book (purchases journal).

19. Which books of prime entry record returns of goods?

    The sales returns day book (returns inwards) records goods returned by customers. The purchases returns day book (returns outwards) records goods the business returns to suppliers.

20. What is the journal used for as a book of prime entry?

    The journal records transactions that do not fit into the other books of prime entry — such as opening entries, correction of errors, year-end adjustments, irrecoverable debt write-offs and other non-routine entries.

21. When checking a supplier's invoice, what key items should be verified before authorising it for payment?

    Check that the invoice matches the purchase order and goods received note (correct goods, quantities and prices), that calculations of totals, discounts and VAT are correct, that the supplier details and address are correct, and that the goods were actually received in good condition.

22. Why must purchase invoices be authorised before payment?

    Authorisation provides an internal control ensuring that only valid, correctly priced invoices for goods/services actually received are paid, preventing fraud, duplicate payments and overpayments.

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